Regulatory Impact Analysis for the Regulation of Microbial Products of Biotechnology: Benefits of the Final Rule

III. BENEFITS OF THE FINAL RULE

This chapter discusses the ways in which the regulation of microorganisms
under TSCA will result in the realization of certain societal benefits.
Specifically, EPA regulation of such products, as set forth in therule,
is expected to reduce risks to health and the environment whileconcurrently
resulting in greater regulatory efficiency and possibly improvingthe
pace of product commercialization. This is accomplished by reducingregulatory
burdens associated with microorganisms that pose the leastlikelihood
of exhibiting new behaviors or new phenotypic traits. Thus, therisk
reduction potential of EPA's rules under TSCA will be concentrated
onthose microorganisms posing the greatest uncertainty concerning
risk to humanhealth or the environment.

Unfortunately, risks to human health and the environment associated
withmicroorganisms cannot be quantified accurately with information
currentlyavailable or, in some cases, even identified with confidence.
This chapter,therefore, provides a qualitative and necessarily incomplete
assessment ofpossible risk reduction due to microbial regulation
under TSCA. The chapteris organized as follows:

Section A provides an overview of possible adverse impacts
of

genetically modified, novel microorganisms;

Section B presents an assessment of the risk reduction potentialof
the rule; and

Section C presents a qualitative assessment of the benefitsassociated
with the rule.

A. Overview of Risks of Novel Microorganisms

There has been much discussion of whether possible hazards areassociated
with the use of certain genetically modified organisms, includingreports
such as those from the Ecological Society of America (Tiedje 1989),

the National Academy of Sciences (NAS 1987 and National Research
Council1989), and the Office of Technology Assessment (OTA 1988).

A number of important features distinguish microorganisms fromtraditional
chemicals and under some circumstances could contribute touncertainty
concerning their risk. These features include the potential formicroorganisms
to spread and multiply in the environment (sometimes from verysmall
initial populations), the ability to evolve, the ability to exchangegenetic
information with other microorganisms, the ability to continuallyproduce
proteins that may be ecologically disruptive or toxic to plants
oranimals, the ability to interact with other organisms through
competition forresources within an ecosystem, and the possible displacement
of members ofnatural microbial communities.

Possible adverse impacts could include health effects on humans,animals,
and plants; increased costs or decreased productivity in farming
andother areas of the economy; and ecological impacts whose long
run health oreconomic effects may not be immediately apparent. At
present, there isuncertainty as to the likelihood of these adverse
impacts and theirrelationship to the use of microorganisms reportable
under the rule.

Potential risks of environmental use of microorganisms must be
assessedthrough consideration of characteristics of the microorganisms,
theenvironment into which they will be released, and the environments
into whichthey are capable of spreading (OTA 1988, NAS 1987, NAS
1989, Tiedje 1989). The Ecological Society of America identified
examples of some potentialoutcomes associated with the development
of engineered organisms that are tobe avoided (Tiedje 1989):

The creation of new pests.

Enhancement of the effects of existing pests through transfer ofan
introduced trait.

Disruptive effects on biotic communities. For example, theintroduction
into certain agricultural fields of the highlycompetitive non-indigenous
nitrogen-fixing bacterium,Bradyrhizobium serogroup 123, has
made it difficult to introducepotentially more effective rhizobia
in those fields.

Incomplete degradation of hazardous chemicals leading to theproduction
of even more toxic by-products. For example, themicrobial degradation
of trichloroethylene (TCE) andtetrachloroethylene (or perchloroethylene,
PCE) produces the moretoxic substance vinyl chloride.

Squandering of valuable biological resources. For example, genesfor
toxins produced by strains of certain bacteria have beeninserted
into crop plants and trees, conferring resistance againstsome pests.
However, the genetically engineered crops as well asthe unaltered
bacteria could be rendered ineffective by creatingconditions that
accelerate the evolution of pest resistance.

B. Risk Reduction from Microbial Regulation

The principal benefits of the rule accrue through the avoidance
of coststhat would be borne by society in the event that regulatory
oversight asoutlined in the rule is not instituted. Such costs would
result from damageto human health and the environment. To avoid
these costs, the provisions of the rule have been designed to reduce
risks associated with the introductionof new microorganisms into
the environment.

This section first presents a qualitative assessment of the riskreduction
potential of the requirements of the rule and then summarizes thepoints
in the product development and regulatory process at which actionstaken
in response to regulatory oversight may be triggered, thereby directlyreducing
risk.

1. Risk Reduction Potential of Informational Requirements

In order for EPA to make a determination as to whether aparticular
microorganism may present risks to society, certain data regardingthe
identity, genetic makeup, and behavior of the new microorganisms
are

necessary. Thus, the rule contains provisions asking for the submission
ofdata that describe:

the recipient microorganism and the new microorganism;

the genetic construction of the new microorganism; and

phenotypic and ecological characteristics associated with the newmicroorganism.

In addition to the microbiological data necessary to identify
themicroorganisms involved in a project, EPA requires researchers/manufacturersto
submit information describing the activity for which the microorganism
wasdeveloped. In the case of environmental releases for research
anddevelopment, informational requirements include:

a detailed description of the research and development activity,including
rationale, number of cells and application method, andcharacteristics
of the test site; and

In the case of releases associated with the general commercial
use of a newmicroorganism subject to reporting under the rule, informational
requirementsinclude:

total production volume;

a description of the intended categories of use; and

information describing worker exposure and environmental releases.

The availability of these data will ensure that EPA is well informed
onthe potential fate of microorganisms and able to quickly evaluate
theconsequences of an environmental release and identify potential
untowardeffects that might result. The Agency and/or the submitter
may then act toensure that the use of the microorganisms presents
no unreasonable risks.

It should be noted that EPA recognizes that the incremental benefitsrealized
in connection with reporting via the two main reporting vehicles

established in the rule (the MCAN and the TERA) will not be of
similarmagnitude in all cases. For example, exemptions from full
reporting will begranted for contained structure uses under certain
conditions. Theseexemptions reduce costs where incremental benefits
of full reporting wereestimated to be somewhat lower than in unfamiliar
cases or cases where controlmechanisms are judged to be adequate
to ensure that unreasonable risks havebeen mitigated. Also, since
these exemptions generally apply to widely usedmicroorganisms, the
overall reporting burden will be minimized under the rule. Thus,
the rule has been designed to allow flexibility.

Finally, EPA requires the submission of all reasonably ascertainabledata
pertaining to subject microorganisms' effects on health and theenvironment.
These data are of obvious value to the Agency in its efforts toprevent
unreasonable risk. Also, since the microorganisms in question are"new",
not all data on health and environmental effects would be expected
toexist in the public domain.

It is not possible to estimate the proportion of overall benefitprovided
by each of the categories of information described above. Each,however,
is essential if the rule is to maximize overall risk reductionbenefits.

2. Risk Reduction Associated with Documentation and Recordkeeping

Requirements

In addition to reporting requirements, the rule containsprovisions
requiring that certain records be maintained. All persons filingnotices
and applications in connection with the general commercial use of
amicroorganism will be required to maintain records of all data
included in thesubmission. Those persons commencing work will be
required to maintainrecords that document the date of commencement
and, if manufacturing,

importing, or processing, the production volumes generated or used
duringthree years of operations.

Records would also need to be maintained in support of certainexemptions
(such as the exemption for "small quantities" of microorganismsintended
for R&D use in a contained structure).

These requirements contribute to overall risk reduction by requiringresearchers
to address risk considerations in the planning and execution ofresearch,
by ensuring that a responsible official also addresses theseconsiderations,
and by enabling EPA to perform more meaningful inspections. Inmany
cases, approvals for commencement of work may be granted without
Agencyimposed restrictions being placed on the activity in question.
However, inother cases, approvals or exemptions may be granted based
on specificinformation that the submitter has provided to Agency
reviewers. In caseswhere a determination was made that risk would
be maintained at reasonablelevels based on certain containment and/or
control mechanisms described by thesubmitter, on-site verification
by EPA field staff that precautions wereindeed being properly implemented
would be possible. Similarly, on-siteverification in association
with work being performed by submitters operatingunder a consent
order or TERA agreement is only possible if a record of thesubmission
and agreement or order is available to the inspector.

3. Risk Reduction Potential of Consent Orders and TERA Agreements

Once EPA has ascertained the potential risk posed by a particularmicrobiological
product, action may be taken under TSCA to preventunreasonable risk.
If, prior to granting approval for the general commercialuse of
a microorganism, the Agency concludes that risks are unreasonable,
itcould prevent the activity altogether. However, if the Agency
has some riskconcerns following review at this stage, it can reduce
risks by placing

conditions on the activity or by requiring additional testing.
For example,EPA may require the company to monitor the fate of the
microorganism, so as toensure that no unanticipated consequences
occur. The Agency could alsorequire engineering or procedural controls
to limit incidental releases of themicroorganism. The Agency also
may impose restrictions such as limitingproduction or import volumes
or confining a field test to a certain area.

4. Risk Reduction due to Action Taken in Response to Regulatory

Oversight

The risk reduction potential of the rule as discussed above may
berealized through a number of different actions taken during the
review processby both EPA and the regulated community.

For example, some important risk reduction may begin during laboratoryresearch,
as some researchers could be encouraged to design microorganismsthat
are less likely to exhibit novel behaviors of concern in an attempt
toreduce the level of review and thereby avoid costs. Researchers
may beencouraged to develop microorganisms that do not exhibit novel
patterns ofsurvival or dissemination in the environment.

Similarly, changes that reduce risk may occur during Agency review.
With regard to an environmental application of a new microorganism,
aresearcher could revise a planned field test to accommodate Agency
riskconcerns. For fermentation-system activities, risk reduction
also may beginprior to or during formal EPA review if companies
revise procedures to allowfor higher levels of containment or control
in response to Agency concerns. Companies also may develop the information
that will reduce uncertainty abouta microorganisms' behavior and
include the information in their submission. These actions directly
serve to reduce risk by reducing the probability that anew microorganism
exhibiting a phenotypic trait injurious to human health orthe environment
will become established outside of its controlled site.

C. Qualitative Assessment of Incremental Benefits

The incremental benefits associated with the requirements contained
inthe rule arise in connection with the risk reduction potential
of the rule(with risk reduction achieved as detailed above). By
reducing risk, socialcosts associated with remediation of damages
to health and the environment canbe avoided. The rule also contributes
to greater regulatory efficiency, as itis estimated that the rule
will provide the public with more risk reductionper dollar expended.
Finally, the pace of commercialization of certainproducts could
be enhanced.

The remainder of this section will present the rationale behind
EPA'squalitative incremental benefits assessment and provide further
insight intothe characterization of the benefits of the rule's requirements.

1. Sources of Incremental Benefits

In its oversight of microorganisms under TSCA, EPA intends tofocus
on those microorganisms that are most likely to pose the greatestuncertainty
regarding risk to human health and the environment. To achievethis
focus, the Agency will regulate only intergeneric or "new" microorganismsand
will use its authority under TSCA section 5(h)(4) to reduce reportingrequirements
for some microorganisms that are determined to pose nounreasonable
risk to human health or the environment.

With regard to reporting exemptions, EPA stated in its Policy
Statementas part of the "1986 Coordinated Framework," that certain
contained uses of microorganisms may also warrant a TSCA section
5(h)(4) exemption. This rulewill exempt certain microorganisms that
are used in a manner minimizing theirrelease to the environment
from full reporting requirements. Moreover, therule describes an
exemption for two species of Rhizobia and Bradyrhizobia
whentested in the environment under certain conditions.

Thus, as a result of these exemptions from reporting under section5(h)(4)
of TSCA for certain microorganisms and uses which present lessuncertainty,
reporting burden for such products under the rule will be reducedcompared
to current policy. Further, since reporting requirements for thebalance
of potentially regulated products under the rule would be no moreburdensome
than under current oversight policies, it is clear that the rulewill
increase the efficiency of EPA's regulatory program under TSCA.

In addition to enhanced regulatory efficiency, the rule would
also makereporting in connection with R&D conducted outside
of a contained structuremandatory. The effect of this change in
policy (such reporting is nowvoluntary) should enhance EPA's regulatory
program by allowing proposals forfield trials to be reviewed by
the Agency prior to receiving trial data at thegeneral commercial
use stage of a microorganism, thus allowing any potentialuntoward
effects of the microorganism to be identified sooner (i.e., before
afield trial). Since the Agency strongly encourages and has received
voluntarysubmissions in connection with field trials under the current
policy, thispolicy change is not expected to be associated with
significant impacts;however, to the extent that voluntary submissions
have not been submitted, thechange would provide for an increase
in social benefits.

2. Characterization of Benefits

The incremental risk reduction benefits expected to accrue inassociation
with the requirements of the rule are principally due to theavoidance
of potential costs of damage to health and the environment. To theextent
that adverse effects are irreversible or only partially reversible,resulting
costs may be quite large. Thus, although the magnitude of potentialcosts
were not quantifiable, EPA judges the ability of the rule to minimizethe
probability of such a burden on society to be of substantial value.

Further, to the extent that these costs are transferred from society
atlarge back to the biotechnology sector through compliance with
EPA oversightmechanisms, equity is enhanced.

Also, issuance of EPA's rule is likely to avoid a patchwork of
state andlocal regulations that have begun to develop in the absence
of a comprehensivefederal rule; thus, businesses will have a level
playing field and may find itmuch easier to comply. Inconsistent
and uneven regulations across regionscould raise rule familiarization
costs and reporting costs dramatically, anddistort choices of locations
for research and production. They also couldnarrow the potential
market for biotechnology products, thereby dampeningprofit expectations
and innovative activities. If a uniform federal rule isput in place,
the industry may avoid many of these problems.(Footnote 1)

The industry also should benefit from the rule through the "seal
ofapproval" that the public may perceive to be attached to microorganismsreviewed
by the Agency. This benefit is already available for many productsunder
the current policy framework. This would be a benefit to society
as awhole to the extent that it increases public confidence and
removes publicopposition to the development of safe and useful products,
thus creating amore favorable environment for biotechnology innovators.
(This benefit wouldresult from any federal rule that allayed public
concerns and is notnecessarily a unique benefit of one particular
option.)

One type of evidence that this benefit is real lies in the fact
thatmanufacturers are now willing to make voluntary PMN submissions
in connectionwith R&D. This may indicate that they feel that
the public relations benefits

of the submissions outweigh their costs, though it could also be
thatvoluntary submissions are made for liability reasons or to help
preventregulatory delays in the future.

The rule could also benefit the industry by reducing uncertainty
aboutfuture regulations. Uncertainty has been mentioned as an industry
concern inseveral sources, including the ICF 1988 survey of the
biotechnology industry(ICF 1988) and the 1991 survey update (see
Appendix B), a study by Ann Vidaver(Biotechnology 1990), and "Biotechnology:
Delays in and Status of EPA'sEfforts to Issue a TSCA Regulation"
(GAO 1992).

The General Accounting Office (GAO) interviewed officials from
threebiotechnology associations - The Association of Biotechnology
Companies (ABC),The Industrial Biotechnology Association (IBA) (which
together now constitutethe Biotechnology Industry Association (BIO)),
and The Applied BioTreatmentAssociation (ABTA). Representatives
from these associations indicated to GAOthat the lack of a final
TSCA biotechnology regulation has caused uncertaintyand is hindering
the industry's ability to conduct long-term planning andraise capital
for new product research because researchers and investorsnormally
consider the costs of meeting regulatory criteria in investmentdecisions.
The GAO report also cited an official from the Office ofTechnology
Assessment (OTA) who testified that "the failure to promulgatefinal
regulations has led to complaints by industry representatives that
theregulatory approval process is unclear and inhibits investment"
(GAO 1992).

In addition, an EPA researcher in the area of bioremediation suggestedthat
benefits from increased certainty depend strongly on whether regulationsare
very specific as to what is permitted, or if the regulators (includingthose
charged with implementing statutes other than TSCA) proceed on a
case-

by-case basis. The former approach may reduce delays in product
development,but the latter would not significantly reduce uncertainty
(Shields 1990).

Finally, unless there is coordination among federal, state, and
localagencies regarding notification and other regulatory requirements,
uncertaintywill remain. For example, there could be duplication
and overlapping ofregulations without a coordinated framework. As
a result, companies may beunable to decide to which agency to submit
information for review. Thisuncertainty may lead to additional costs
and delays in the development ofcommercial products.

1. If the federal rule is viewed as an alternative
to a collection ofstate and local regulations, the federal rule's
costs and risk-reductionbenefits would be measured incrementally
to the costs and benefits of stateand local regulations.